CAPITAL FINANCING

Alternative 

Approaches to 

Budgeting for Federal 

Real Property

Report to the Chairman, Committee on 

Homeland Security and Governmental 

Affairs, U.S. Senate

March 2014

GAO-14-239

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-239, a report to the 

Chairman, Committee on Homeland Security 

and Governmental Affairs, U.S. Senate

March 2014

CAPITAL FINANCING

Alternative Approaches to Budgeting for Federal Real 

Property

Why GAO Did This Study

Federal real property projects are fully 

funded when Congress provides 

budget authority and appropriations for 

the estimated full cost of the projects 

up front—at the time they are 

undertaken. However, as agencies 

work to balance limited resources with 

mission demands, many have turned 

to approaches other than full upfront 

funding to acquire, renovate, or 

dispose of federal real property, such 

as buildings, structures, and land. GAO 

was asked to review alternative models 

for managing federal real property. 

This report examines (1) agency 

experiences funding federal real 

property projects, (2) some of the 

alternative funding mechanisms 

selected agencies use, as well as 

agency experiences using selected 

mechanisms, and (3) alternative 

budgetary structures within the current 

unified budget that may potentially help 

Congress and agencies better 

recognize the cost of real property 

projects and associated returns,

promoting both transparency and fiscal 

control. GAO reviewed case study 

projects from 4 agencies among the 

top 10 in federal real property holdings 

and chosen based on their use of 

alternative funding mechanisms, as 

identified in our past and ongoing work.

Finally, GAO identified alternative 

budgetary structures that may support 

real property projects and principles for 

considering them by reviewing 

published reports and interviewing 

federal budget staff and experts.

GAO is not making any 

recommendations in this report. GSA, 

USDA, VA, and Interior generally 

agreed with our findings. USDA, 

Interior and VA provided technical 

comments that were incorporated as 

appropriate.

What GAO Found

Officials at four selected agencies—the General Services Administration (GSA), 

U.S. Department of Agriculture (USDA), the Department of Veterans Affairs (VA), 

and the Department of the Interior (Interior)—experienced challenges receiving 

full upfront funding for federal real property projects through the annual 

appropriations process. For example, due to budget constraints, GSA acquired 

one property between 2008 and 2012. In addition, GSA has been unable to 

access funding to complete renovations in Interior’s headquarters building due to 

obligation limitations in the GSA-administered Federal Buildings Fund (FBF). The 

FBF, which is the primary funding source for operating and capital costs 

associated with federal space, held an unobligated carryover balance of $4.7 

billion at the end of fiscal year 2013 as a result of congressional limits on 

obligations. Officials noted that authority to retain proceeds provides a key 

incentive to initiate disposals, as agencies without this authority must request 

upfront funding for disposal costs while resulting proceeds are paid to the 

Department of the Treasury. Nonetheless, officials at selected agencies with the 

authority to retain disposal proceeds cited barriers to disposals, such as poor 

market demand, historical status or necessary remediation.

 

Instead of full upfront funding, selected agencies sometimes used a variety of 

alternative funding mechanisms to meet their real property needs by leveraging

authorized monetary resources, such as retained fees, and non-monetary 

resources, such as property exchanged in a swap or space offered in an 

enhanced use lease. Alternative funding mechanisms are not universally 

available to all agencies; even within an agency, legal authorities may differ 

across agency components. For alternative funding mechanisms that involve 

working with a partner, such as in a land swap, the agency’s ability to find an 

appropriate partner, manage that partnering relationship, and share risk—both 

explicit and implicit—with the partner affected project outcomes. For example, 

because of legal, cost, and other challenges, officials from USDA’s Agricultural 

Research Service (ARS) said that ARS held onto land for about 10 years while 

seeking an appropriate partner to successfully complete the land swap.

Changes to the budgetary structure itself—within the bounds of the unified 

budget—might provide a more consistent way to meet real property needs while

helping Congress and agencies make more prudent long-term fiscal decisions. 

Alternative budgetary structures should balance tradeoffs across two key GAOidentified budgeting and capital planning principles: (1) promoting transparency 

and fiscal control with regard to the funding of federal real property; and (2) 

providing agencies the flexibility to facilitate the acquisition, repair and alteration, 

and disposal of federal real property in support of federal missions. GAO 

provides alternative budgetary structure options for Congress to consider. For 

example, in one option Congress would make the full balance of the FBF 

available for funding real property projects, which could create room for 

additional agency flexibility but may reduce fiscal control. Another option would

establish a government-wide capital acquisition fund with authority to borrow 

from the Federal Financing Bank for approved projects, which could improve 

transparency of both costs and benefits upfront and over time while business 

case analyses could provide a means of assuring fiscal control.

View GAO-14-239. For more information, 

contact Susan J. Irving, Director for Federal 

Budget Analysis, at (202) 512-6806 or 

irvings@gao.gov.
Page i GAO-14-239 Capital Financing

Letter 1

Background 5

Case Study Agency Officials Experienced Challenges Receiving 

Full Upfront Funding for Federal Real Property Projects 13

Alternative Funding Mechanisms Helped Agencies Meet Their 

Real Property Needs, but Also Posed Challenges 17

Alternative Budgetary Structures Have Potential to Help Congress 

and Agencies Recognize the Costs and Returns of Real 

Property Projects Upfront and Over Time 26

Concluding Observations 37

Appendix I Comments from the General Services Administration 40

Appendix II Comments from the Department of Veterans Affairs 43

Appendix III Selected Related GAO Work 45

Appendix IV GAO Contacts and Staff Acknowledgements 47

Tables

Table 1: Selected Alternative Funding Mechanism Definitions, 

Considerations, and Related Case Studies 19

Table 2: Principles for Considering Changes to the Current 

Budgetary Structure 28

Figures

Figure 1: The Process of Obtaining Upfront Funding through the 

Annual Appropriations Process 7

Figure 2: Prospectus Process for Approval of High-Value Federal 

Building Fund Transactions 12

Figure 3: Total Costs for Columbia Plaza Transaction Included 

Initial Renovations and Lease Payments 15

Contents
Page ii GAO-14-239 Capital Financing

Figure 4: One Model for Obtaining Funding Through a 

Government-wide Capital Acquisition Fund (CAF) 35

Figure 5: One Model for Obtaining Funding Through a Dedicated 

Fund 36

Abbreviations

ARS Agriculture Research Service

CAF Capital Acquisition Fund

CBO Congressional Budget Office

EUL Enhanced Use Lease

FBF Federal Buildings Fund

FFB Federal Financing Bank

GSA General Services Administration

Interior Department of the Interior

NPS National Park Service

OMB Office of Management and Budget

PAYGO Pay-as-you-go budget enforcement mechanisms

VA Department of Veterans Affairs

VHA Veterans Health Administration

USDA United States Department of Agriculture

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Page 1 GAO-14-239 Capital Financing

441 G St. N.W.

Washington, DC 20548

March 12, 2014

The Honorable Thomas R. Carper

Chairman

Committee on Homeland Security and Governmental Affairs

United States Senate

Dear Mr. Chairman,

The budget process is the federal government’s primary resource 

allocation, financial planning, and control tool. Accordingly, it helps 

establish national spending priorities and the allocation of resources; it 

also helps ensure that the government spends taxpayers’ money in 

accordance with applicable laws. Given the budget’s dual functions, 

federal real property projects such as structures, buildings, and land are 

fully funded when Congress provides budget authority for the estimated 

full cost of projects up front (at the time they are undertaken). Such 

upfront funding recognizes the commitments embodied in budgetary 

decisions and maintains government-wide fiscal control. However, it can 

be challenging for agencies to make the case for such large commitments 

of funding as other critical needs compete for scarce federal dollars. 

Congress has provided some agencies with specific authorities to use 

alternative funding mechanisms for the acquisition, renovation, or 

disposal of federal real property without full, upfront funding. Some of 

these alternative mechanisms allow selected agencies to meet their real 

property needs by leveraging other authorized resources, such as 

retained fees or land swaps with a private sector partner. Depending on 

the funding approach, the budgetary treatment of project costs may allow 

an agency to spread the asset cost over a number of years or monetary 

costs incurred may not be recognized in the budget. Because various 

funding approaches are reflected differently in the budget, resource 

allocation decisions for real property projects may not consider the full 

financial commitment the U.S. government is making. Further, costs for 

projects financed through alternative mechanisms may not be fully 

reflected in the budget request, whereas the costs for projects that require 

full upfront funding are fully reflected in the budget request. From an 

agency's perspective, meeting real property needs through alternative 

funding mechanisms can be attractive because the agency can undertake 

the project without first having to secure full upfront funding to cover the 

cost of the project. As a result, projects financed through alternative 
Page 2 GAO-14-239 Capital Financing

mechanisms may be selected over other equally worthy projects for which 

full upfront funding would be requested. From a government-wide 

perspective, however, the costs associated with some alternative funding 

mechanisms may be greater than full, upfront funding.

1

 

In contrast to alternative funding mechanisms that agencies use to meet 

their real property needs, alternative structures within the budget, such as 

capital acquisition funds, have also been proposed. These proposed 

alternative budgetary structures serve as potential options to help 

agencies address their real property needs while minimizing costs to 

taxpayers. Ideally, any established alternative budgetary structure would 

reward prudent investment decisions from both an agency perspective 

and a long-term governmentwide perspective to maintain appropriate 

stewardship over federal resources.

You asked us to review alternative models for managing federal real 

property. This report examines (1) agency experiences funding federal 

real property projects; (2) some of the alternative funding mechanisms 

selected agencies use to help them in the acquisition, repair and 

alteration, and disposal of federal property, as well as agency 

experiences using selected alternative mechanisms; and (3) alternative 

budgetary structures within the current unified budget2 that may help 

Congress and agencies better recognize the cost of real property projects 

and associated returns, and promote transparency and fiscal control in 

funding real property projects.

 1 For example, in 67 General Service Administration (GSA) leases we examined in a 

series of reports since 1995, the government could have saved almost $1 billion if it had 

constructed rather than leased space for federal agencies. See GAO, Federal Real 

Property: Greater Transparency and Strategic Focus Needed for High-Value GSA Leases. 

GAO-13-744 (Washington, D.C.: Sept. 19, 2013).

2 We have previously reported on the federal government’s use of the unified budget. The 

unified budget allows the federal government to treat spending on real property projects 

like any current operating expense. The unified budget recognizes the federal 

government’s involvement in national economic stability and growth, a responsibility that is 

uniquely federal and requires the government to focus on total spending in relation to total 

revenue. Reforms in how the federal government budgets for real property projects should 

be considered, but any capital budgeting allocation process should be studied within the 

overall constraints of a fiscal policy based on unified budget principles. See GAO, Budget 

Issues: Budgeting for Capital, GAO/T-AIMD-98-99 (Washington, D.C.: Mar. 6, 1998) and 

Pros and Cons of a Separate Capital Budget for the Federal Government. GAO/PAD-83-1

(Washington, D.C.: Sept 22, 1983).
Page 3 GAO-14-239 Capital Financing

To illustrate agency experiences funding federal real property projects

and the alternative financing mechanisms they used to meet their real 

federal property needs, we selected nongeneralizable case study projects 

from the following four agencies:

• General Services Administration (GSA),

• United States Department of Agriculture (USDA),

• Department of Veterans Affairs (VA), and

• Department of the Interior (Interior).

These 4 agencies are among the top 10 agencies in federal real property 

holdings according to the fiscal year 2012 Federal Real Property Profile 

and U.S. Postal Service property data.3 We also chose to select these 

four agencies based on their use of alternative funding mechanisms, as 

identified in our past and ongoing work.4

From these agencies, we selected nongeneralizable case study projects 

that used an alternative funding mechanism from fiscal years 2008 

through 2012. Projects were selected based on agency data on real 

property projects, the dollar value of transactions, and analysis of 

interviews with agency officials. In some cases, projects were selected 

from subcomponents to illustrate use of available legal authorities. These 

projects are for illustrative purposes only and reflect variation in 

alternative funding mechanisms, but the results from these projects

cannot be generalized more broadly. Selected case study projects are 

drawn from leases and acquisitions held and managed by GSA and the 

following agency subcomponents:

 3 For agencies with the largest federal real property holdings, see GAO, Federal Real 

Property: Strategic Partnerships and Local Coordination Could Help Agencies Better 

Utilize Space, GAO-12-779 (Washington, D.C.: July 25, 2012). We have previously 

reported that while sound data collection practices in designing and maintaining the 

Federal Real Property Profile database have not been followed, the Federal Real Property 

Profile can be used in a general sense to track assets. See GAO, Federal Real Property: 

National Strategy and Better Data Needed to Improve Management of Excess and 

Underutilized Property, GAO-12-645 (Washington, D.C.: June 20, 2012).

4 GAO, Budget Issues: Alternative Approaches to Finance Federal Capital, GAO-03-1011

(Washington, D.C.: Aug. 21, 2003).
Page 4 GAO-14-239 Capital Financing

• Interior, National Park Service (NPS),

• USDA, Agricultural Research Service (ARS),

• USDA, Forest Service, and

• VA, Veterans Health Administration (VHA).

To understand selected agencies’ experiences obtaining funding for real 

property projects and using alternative funding mechanisms, we analyzed 

relevant documentation related to agencies’ real property projects. This 

included agency policies, budget documents, and reports to Congress. 

We reviewed relevant federal laws, regulations, and policies and 

analyzed relevant legal authorities. We interviewed cognizant officials at 

each of the selected agencies about their experiences obtaining funding 

for real property projects and using alternative funding mechanisms. We 

also interviewed officials involved in the selected real property projects. 

These nongeneralizable case studies were chosen to illustrate a range of 

alternative funding mechanisms. To develop themes and examples from 

our documentary and testimonial evidence, we analyzed information from 

relevant documents and interviews to identify and confirm common 

patterns across our selected agencies. We did not independently verify 

the descriptions or outcomes of the real property projects nor did we 

interview organizations that partnered with agencies.

Finally, to guide our consideration of alternative budgetary structures, we 

reviewed published reports and interviewed federal budget staff and 

experts. To identify principles that could help Congress and agencies 

recognize the cost of real property projects and associated returns, and 

promote transparency and fiscal control in funding real property projects, 

we reviewed our prior reports and external sources, such as Office of 

Management and Budget (OMB) guidance and the report of the 

President’s Commission on Budget Concepts. We then reviewed our 

reports and external literature to identify funding structures that could help 

support real property projects. From this review, we identified and 

explored various options which we compared to proposed changes within 

the current unified budget. We also used this literature to identify possible 

implications—a list which is not exhaustive—if identified options were to 

be adopted. We then interviewed federal budget staff from the 

Congressional Budget Office (CBO) and OMB as well as industry experts 

to obtain their views on the benefits and challenges of the alternative 

budgetary structures that we identified. We contacted the National 

Federal Development Association, a trade association representing 

organizations and individuals that provide real estate services to the 

federal government. This association referred us to an industry expert 

with more than 25 years of experience in federal government real estate.
Page 5 GAO-14-239 Capital Financing

In addition, we spoke with a past congressional witness with extensive 

experience on federal real estate and budgeting experience at both OMB 

and CBO. Finally, we shared these alternative budgetary structures with 

our selected agencies to obtain their views.

We conducted this performance audit from May 2013 to March 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Since 2003, we have identified managing federal real property, including 

effectively managing excess and underused property and an overreliance 

on leasing, as a high risk issue facing the federal government. In June 

2010, the President directed agencies to achieve real property cost 

savings through a number of measures, including disposal of excess real 

property and reducing leasing through consolidations and increased 

space utilization.5 In 2011, the administration proposed legislation, known 

as the Civilian Property Realignment Act (commonly referred to as 

CPRA), and accompanying bills were introduced in both legislative 

chambers, which would identify opportunities to consolidate, reduce, and 

realign the federal footprint as well as expedite the disposal of properties 

by building off the military base realignment and closure (commonly 

referred to as BRAC) processes.6 In May 2012, OMB issued a 

memorandum directing agencies to not increase the size of their civilian 

real estate inventory, stating that increases in an agency’s total square 

footage of civilization property must be offset through consolidation, colocation, or disposal of space from the inventory of that agency, a policy 

that became known as “freeze the footprint.” As a result, acquisition has 

 5 Memorandum—Disposing of Unneeded Federal Real Estate—Increasing Sale 

Proceeds, Cutting Operations Costs, and Improving Energy Efficiency, 75 Fed. Reg. 

33987 (June 16, 2010). We have previously reported on agencies’ reported cost savings 

in response to the June 2010 memorandum. GAO, Federal Real Property: Improved 

Standards Needed to Ensure That Agencies’ Reported Cost Savings Are Reliable and 

Transparent. GAO-14-12 (Washington, D.C.: Oct. 29, 2013)

6 Letter from Jacob J. Lew, Director, Office of Management and Budget, to The Honorable 

Joseph R. Biden, President of the Senate (May 4, 2011)

Background
Page 6 GAO-14-239 Capital Financing

become more about consolidation and identifying opportunities to share 

space rather than acquiring new space. 

Pursuant to the Government Performance and Results Modernization Act, 

OMB identified real property as a Federal Government priority goal.

7

Agencies are currently working on 3-year Revised Real Property Cost 

Savings and Innovation Plans to maintain the fiscal year 2012 square 

footage baseline for federal office and warehouse inventory. Agencies 

have been encouraged to work collaboratively with other agencies and 

GSA to find opportunities for smarter space usage through co-locations 

and consolidations. We have previously reported that real property 

decisions draw considerable attention during congressional deliberations 

over federal appropriations. Stakeholders such as Congress, OMB, and 

the real property-holding agencies have an interest in how the federal 

government carries out its real property acquisition, management, and 

disposal practices.8

Ideally, when an agency has a real property need, such as repairing or 

altering its headquarters building, it determines how to meet that need 

through internal prioritization and the capital planning process. As part of 

the capital funding process, shown in Figure 1, an agency prepares a 

business case analysis and considers how to fund the project, including 

whether to request upfront funding. If an agency chooses to request 

upfront funding from Congress, it submits a business case to Congress 

through the annual appropriations process. If Congress approves the 

project, it may authorize spending for the project by appropriating full 

upfront funding to the agency. Once an agency has obtained upfront 

 7 The Government Performance and Results Modernization Act requires in part that the 

federal government set cross-agency priority goals which are outcome-oriented and 

improve management across the federal government in areas of information technology, 

financial management, human resources, and real property. Pub. L. No. 111-352, 

§ 5, 124 Stat. 3873 (Jan. 4, 2011).

8 These stakeholders include state and local governments, business interests in the 

communities where the real property assets are located, private sector construction and 

leasing firms, historic preservation organizations, various advocacy groups, and the public 

in general, which often views the facilities as the physical face of the federal government 

in their communities. At both the national and local levels, federal real property practices 

also often attract significant media attention, particularly when these practices are under 

scrutiny for waste and mismanagement. See GAO, Federal Real Property: Progress made 

Toward Addressing Problems, but Underlying Obstacles Continue to Hamper Reform. 

GAO-07-349 (Washington, D.C.: April 13, 2007).
Page 7 GAO-14-239 Capital Financing

funding, it can obligate funds to complete “useful assets”9 of the project. 

During implementation as well as at completion of the project, an agency 

may realize returns, such as proceeds from disposal. The completion of 

the project informs agency prioritization and ongoing planning for future 

real property projects.

Figure 1: The Process of Obtaining Upfront Funding through the Annual Appropriations Process

Budget scorekeeping rules are meant to recognize costs as funding 

decisions are being made. These rules were established to ensure that 

the scorekeepers—that is, the House and Senate Budget Committees, 

the CBO, and OMB—can measure the effects of legislation consistently

and conclude that they meet specific legal requirements. These rules are 

also used by OMB for determining amounts to be recognized in the 

budget when an agency signs a contract or enters into a lease. 

 9 A useful asset is an economically and programmatically separate segment of procuring 

an asset or whole asset. The total asset procurement may include one or more useful 

assets. Preparation, Submission, and Execution of the Budget, app. J OMB Circular No. 

A-11 (2013).

Budget Scorekeeping
Page 8 GAO-14-239 Capital Financing

Scorekeeping in the Federal Budget

What is scorekeeping?

Scorekeeping is the process of estimating the budgetary effects of pending legislation and 

comparing them to a baseline. The process allows Congress to compare the cost of 

proposed budgetary policy changes to existing law and to enforce spending and revenue 

levels agreed upon in the budget resolution.

Who are the scorekeepers?

Guidelines are established by the OMB, the CBO, and the Senate and House Budget 

Committees. Scorekeepers have an ongoing dialogue and may revise rules as required. 

Budget Committees and CBO apply the rules to estimate the costs associated with 

proposed legislation. OMB uses the rules to determine amounts to be recognized in the 

budget when an agency signs a contract or enters into a lease. The House and Senate 

Budget Committees make available monthly summary scorekeeping reports.

Source: GAO analysis of Title 2 of the U.S. Code and OMB guidance.

We have previously found that upfront funding is the best way to ensure 

recognition of commitments embodied in budgeting decisions and 

maintain government-wide fiscal control.10 As shown below, under 

scorekeeping rules, for a purchase or a capital lease the full cost of the 

project must be recorded in the budget in the year in which the budget 

authority is to be made available.11 In contrast, operating leases are 

intended for short-term needs, and under the scorekeeping rules, only the 

amount needed to cover the first year’s lease payments plus cancellation 

costs need to be recorded in the budget in that year. 

 10 See GAO, Understanding Similarities and Differences between Accrual and Cash 

Deficits, GAO-07-117SP (Washington, D.C.: December 2006).

11 When capital assets are purchased, the budget recognizes the full cost up front to 

provide decision-makers with the information and incentives to make efficient decisions at 

the only time that they can control the cost. However, under the accrual basis of

accounting used in the financial statements, the cost of the asset is initially recorded on 

the balance sheet. The cost of the asset is then spread over its expected useful life to 

match the asset’s cost with its use.
Page 9 GAO-14-239 Capital Financing

Summary of Scorekeeping Guidelines for Purchases and Leases

When an agency is granted the authority to enter into a contract for the purchase, leasepurchase, capital lease, or operating lease of an asset, budget authority and outlays may 

be scored as follows: 

• Lease-purchases and Capital Leases: budget authority will be scored against the 

legislation in the year in which the budget authority is first made available in the 

amount of the estimated net present value of the government’s total estimated legal 

obligations over the life of the contract, except for imputed interest and identifiable 

operating expenses.

• Operating leases: budget authority will be scored against the legislation in the year 

in which the budget authority is first made available in the amount necessary to cover 

the government’s legal obligation. The amount scored will include the estimated total 

payments expected to arise under the full term of the lease contract, or, if a 

cancellation clause is included in the lease, for the first fiscal year and the amount of 

cancellation costs.12

• Purchases: no special rules apply to scoring purchases of assets (whether the asset 

is existing or is to be manufactured or constructed). Budget authority is scored in the 

year in which the authority to purchase is first made available in the amount of the 

government's estimated legal obligations.

To distinguish lease purchases and capital leases from operating leases, the following 

criteria will be used for defining an operating lease:

• Ownership of the asset remains with the lessor during the term of the lease and is not 

transferred to the government at or shortly after the end of the lease period.

• The lease does not contain a bargain-price purchase option.

• The lease term does not exceed 75 percent of the estimated economic lifetime of the 

asset.

• The present value of the minimum lease payments over the life of the lease does not 

exceed 90 percent of the fair market value of the asset at the inception of the lease.

• The asset is a general purpose asset rather than being for a special purpose of the 

government and is not built to unique specification for the government as lessee.

• There is a private-sector market for the asset.

Source: GAO analysis of OMB Circular No. A-11

Using an operating lease—or successive operating leases—for a longterm space need may result in resource allocation decisions for which the 

 12 For operating leases funded by GSA’s FBF, which is self-insuring under existing 

authority, only the amount of budget authority needed to cover the annual lease payment 

is required to be obligated.
Page 10 GAO-14-239 Capital Financing

budgeting process may not have considered the full financial commitment 

over the full length of time the space need exists. Consequently, costly 

operating leases may appear on paper to be preferable to less-costly 

alternatives such as major construction or renovation projects that must 

compete for full funding.

Within the vast portfolio of government owned and leased assets, GSA 

plays the role of broker and property manager to many federal civilian 

agencies, although some agencies—including USDA, VA, and Interior—

have independent authority related to real property. GSA has a large 

portfolio of federally-owned and leased properties that it rents to its 

federal agency customers. As of fiscal year 2011, GSA had a total of 

374.6 million rentable square feet in its inventory, of which 192.7 million—

slightly more than half—were leased. 

The Federal Buildings Fund (FBF), administered by GSA, is a fund 

established by the Public Buildings Act Amendments of 1972. The FBF is 

the primary source of funds for operating and capital costs associated 

with federal space. The FBF is funded primarily by income from rental 

charges assessed to tenant agencies occupying federally owned and 

GSA-managed and -leased space that approximate commercial rates for 

comparable space and services.13 Congress exercises control over the 

FBF through the appropriations process that sets annual limits on how 

much of the fund can be obligated for various activities. In addition, it 

periodically provides supplemental appropriations for the Fund. For 

example, the Fund received $5.6 billion as part of the American Recovery 

and Reinvestment Act of 2009.14 GSA may incur obligations and make 

expenditures from the FBF in five categories of activities: (1) rental of 

space, (2) repairs and alterations, (3) construction and acquisition of 

facilities, (4) building operations and maintenance, and (5) installment 

acquisition payments (funds debt incurred as the result of building 

acquisition and lease purchase arrangements). Revenue from the 

 13 GSA appraises its inventory on a 5 year cycle—approximately 20 percent of its owned 

inventory annually—and charges rent based on rates for comparable assets in the private 

sector. GSA charges its tenants in space leased from the private sector rates equal to the 

cost of the lease plus either a 7 percent (for cancelable assignments) or 5 percent (for 

noncancelable assignments) administrative fee to cover its management costs.

14 American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, div. A, title V, 

123 Stat. 115, 149 (Feb. 17, 2009)

GSA’s Role
Page 11 GAO-14-239 Capital Financing

federally-owned facility inventory managed by GSA is the main source of 

the FBF’s operating income used to fund repair and alteration, new 

construction activities, and operations and maintenance. By statute, GSA 

is required to provide a prospectus for each proposed lease with a net 

annual rent above the prospectus threshold—$2.79 million in fiscal year 

2013, which GSA’s Administrator is authorized to adjust annually—or 

capital project over that threshold, including acquisition, new construction,

and repair and alteration projects. As shown in Figure 2, each prospectus 

is reviewed and approved by both OMB and Congressional authorizing 

committees. 
Page 12 GAO-14-239 Capital Financing

Figure 2: Prospectus Process for Approval of High-Value Federal Building Fund 

Transactions

GSA has not conducted 30-year present value analyses as part of its 

prospectus process since the mid-1990s, as advised by OMB. Such 

analyses help weigh the cost over time of leasing versus owning an asset 

to promote efficient resource allocation for the civilian agencies within 

GSA’s real property portfolio. In September 2013 we reported that the 

decision to halt this type of formal analysis for high-value leases has 

limited the transparency of the prospectus process. We recommended 

that lease prospectuses include a description of the length of time an 

agency estimates a need for a space, how long the agency has leased 

that particular space, and major investments necessary. For spaces for 
Page 13 GAO-14-239 Capital Financing

which an agency has a long-term projected need, we recommended that 

GSA include an appropriate form of cost-to-lease versus cost-to-own 

analysis. GSA concurred with this recommendation.15 Although at times 

leasing versus owning analyses found leasing to be a more cost effective 

option, it often concluded that ownership would be cheaper than leasing; 

however, in many cases where ownership was found to be the better 

option, GSA ultimately recommended leasing due to funding constraints.16

Officials at four selected agencies—GSA, USDA, VA, and Interior—

experienced challenges receiving full upfront funding for federal real 

property projects through the annual appropriations process. For 

example, GSA officials told us that obtaining upfront funding through 

appropriations is difficult and thus presents a barrier to ownership, 

resulting in a reliance on leased space.17 USDA officials said that, given 

current fiscal pressures, they do not routinely request acquisition funds.

Interior officials told us that the Department has had a moratorium on new 

construction since 2010 and that any upfront funding received through the 

annual appropriations process goes towards necessary renovations to 

existing property. Although VA requests and receives appropriations for 

some real property construction projects, it has a significant backlog of 

incomplete major construction projects that have not received funding. 

The Veteran’s Health Administration (VHA) requested $215 million for 

major construction funding in fiscal year 2014 and estimates that it would 

require $5.8 billion to address its current backlog.

Budget constraints have resulted in limited acquisitions at GSA, Interior, 

and USDA. For example, GSA’s sole acquisition between 2008 and 2012 

 15 GSA continues to include the results of an alternatives analysis in its prospectuses for 

capital construction and renovation projects but does not do so in its prospectuses for 

leases. See GAO-13-744.

16 See GAO-13-744.

17 In past work, we have found that GSA relies heavily on high-priced operating leases to 

meet new long-term needs because it typically lacks the upfront funding needed to 

purchase buildings or space. For example, in 2007, we reported that although building 

ownership options through construction or purchase are generally the least expensive 

ways to meet agencies’ long-term space needs, GSA relied heavily on operating leases to 

meet new long-term needs because it lacked funds to pursue ownership. See 

GAO-13-744 and GAO, Federal Real Property: Progress Made Towards Addressing 

Problems, but Underlying Obstacles Continue to Hamper Reform, GAO-07-349

(Washington, D.C.: Apr.13, 2007.)

Case Study Agency 

Officials Experienced

Challenges Receiving 

Full Upfront Funding 

for Federal Real 

Property Projects
Page 14 GAO-14-239 Capital Financing

resulted from exercising a purchase option on a preexisting lease. GSA 

renewed its lease at Columbia Plaza in Washington, D.C. for the 

Department of State (State) in 1992.18 As part of an agreement to invest 

$30.6 million in renovations to the building at that time, GSA was directed 

by congressional resolution to “attempt to include a purchase option in the 

lease contract.” GSA did not have the option to purchase the building in 

1992 but it negotiated a purchase option as part of the terms of the 20-

year lease. As the expiration of the lease neared, GSA concluded that a 

mission need for the building remained and that acquiring the building 

would be financially advantageous. Under the original contract, GSA 

could purchase the building for $100 million though the 2009 appraised 

value was $150 million. A 30-year present value analysis concluded that 

acquiring the building would result in an annual cost advantage of $12 

million over continuing to lease and, in 2012, GSA exercised its purchase 

option. Because State was already occupying Columbia Plaza, GSA 

officials said that they mitigated a portion of the acquisition cost by 

avoiding certain costs typical to the construction process including 

acquiring land, phased funding for construction, paying for interim office 

space, and final relocation to the new space. However, purchase options 

may cost more over the life of a lease than buying a building upfront.

19 

Figure 3 shows that although the contract purchase price was $100 

million, adding in the initial renovation costs and lease payments made 

over the 20-year term, in total the acquisition cost to the government was 

$258 million. 

 18 Columbia Plaza’s close proximity to State’s headquarters building makes it a desirable 

office space for State’s purposes. GSA has leased space in Columbia Plaza since 1974. 

19 GSA officials stated that while a purchase option as part of a lease agreement can be 

advantageous in the right circumstances, GSA carefully considers its inclusion when 

negotiating a contract because a purchase option often includes a premium factored into 

the terms of the lease. 
Page 15 GAO-14-239 Capital Financing

Figure 3: Total Costs for Columbia Plaza Transaction Included Initial Renovations and Lease Payments

a

Rental data excludes tax reimbursements.

b

Limitations on obligations constrain funding for real property, especially 

for repairs, alterations, and new construction. The difference between 

receipts collected in the FBF and the amount authorized for annual 

obligations affected one of our case study agencies that rents property

through GSA. Interior officials said that GSA has been unable to obtain 

FBF funding through the annual appropriations process to complete 

renovations in Interior’s federally-owned and GSA-managed headquarters 

building. As a result, Interior officials said that they have not been able to 

realize the savings they anticipated for a full renovation, such as energy 

savings. The FBF’s balance has increased significantly in recent years, 

growing from $56 million at the beginning of fiscal year 2007 to $4.7

billion at the end of fiscal year 2013.

20 As we previously reported, the 

increased balance has primarily resulted from the growing difference 

between the resources deposited into the FBF and the level of funds GSA 

Fiscal year 2012 includes both lease payments made in that year and the property purchase price.

 20 See GAO, Federal Buildings Fund: Improved Transparency and Long-term Plan 

Needed to Clarify Capital Funding Priorities, GAO-12-646 (Washington, D.C.: July 12, 

2012)
Page 16 GAO-14-239 Capital Financing

is authorized to spend. GSA officials noted that when Congress provides 

less obligational authority than requested, repairs, alterations, and new 

construction projects for GSA-managed buildings are most affected 

because available funds are first used to pay leasing, operations and 

maintenance, and debt costs. As a result, GSA’s obligations authority for 

repairs and alterations projects decreased from $855 million in 2005 to 

$280 million in 2012.21 GSA officials noted that when prioritizing requests 

for repair and alteration projects, they consider asset condition and 

performance; life safety and compliance with laws and regulations; 

customer considerations, including consolidation and reduction in space; 

financial viability, including lease cost avoidance; and improvements to 

utilization rates and recapturing vacant space.

With regard to the disposal of federal property, officials at USDA, which 

has authority to retain proceeds from sales and disposals, cited financial 

obstacles to these initiatives, such as little market demand. For example, 

USDA’s Forest Service was given authority in 2005 to retain proceeds 

from disposals;

22 it typically uses these funds for critical maintenance 

work on its properties or to prepare other buildings for sale. Forest

Service officials said that except for a few administrative buildings in 

affluent areas sold for a high return, the return on investment for

disposals, often for structures on land Forest Service would like to retain,

is minimal. In 2011, the Forest Service reported that it would cost $120 

million to dispose of property with a salvage value of $5 million.

Non-financial barriers to disposal also exist, resulting in underused 

agency property. These obstacles include remote locations, necessary 

environmental cleanup, or limitations on the use of property. Historically 

significant properties are also challenges. For example, VA officials said 

that VA’s historical buildings often require significant cleanup and 

preparation prior to disposal, and the agency must often address 

significant stakeholder interests. In addition, VHA’s buildings are often on 

campuses or are medical facilities, limiting potential buyers or lessees to 

those with missions similar to VA. VHA currently has about 250 vacant 

buildings with no defined need, totaling more than 4 million square feet. 

Interior officials stated that the land Interior owns is primarily stewardship 

 21 Obligational authority includes adjustments due to reprogramming and rescissions.

22 Forest Service Facility Realignment and Enhancement Act of 2005, Pub. L. No. 109-54, 

title V, §505, 119 Stat. 499,563 (Aug. 2, 2005).
Page 17 GAO-14-239 Capital Financing

land for preservation, and thus Interior has few buildings or land to sell. 

Instead, excess buildings on stewardship lands are typically demolished.

To facilitate the disposal of excess property, Interior includes funding for 

disposals as part of its planning process—it requires each bureau to set 

aside 3 percent of its property budget for disposals of excess property.

Officials at GSA and USDA noted that the authority to retain proceeds 

provides a key incentive to initiate disposal transactions. For example, 

officials at GSA, which provides disposal services across the federal 

government, stated that the vast majority of current disposal transactions 

are by agencies or components that have the authority to retain the 

proceeds from sales or disposals. They also said that agencies without 

this authority may have less incentive to dispose of underused property 

as they must take money from competing budget priorities to invest in 

readying a property for sale. USDA officials said that because resulting 

proceeds are remitted to the general fund of the U.S. Treasury as 

miscellaneous receipts, components without authority to retain proceeds 

have little incentive to request full upfront funding for disposal costs such 

as site cleanup, resource surveys, title and legal preparation, and auction 

fees.

Selected agencies have been authorized to use a variety of funding 

mechanisms as an alternative to full upfront funding to meet their real 

property needs. Funding mechanisms leverage both monetary resources, 

such as retained fees, and non-monetary resources, such as property 

exchanged in a land swap or space offered in an enhanced use lease 

Alternative Funding 

Mechanisms Helped 

Agencies Meet Their 

Real Property Needs, 

but Also Posed 

Challenges 

Agencies Use a Variety of 

Funding Mechanisms to 

Meet Their Real Property 

Needs 
Page 18 GAO-14-239 Capital Financing

(EUL).23 In some cases, the funding mechanism may function as a publicprivate partnership intended to further an agency’s mission by working 

with a partner to leverage resources. Some of these mechanisms allow 

the private sector to provide the project’s capital—at their cost of 

borrowing. The U.S. federal government’s cost of borrowing is lower than 

in the private sector. When the private sector provides the project capital, 

the federal government later repays these higher private sector borrowing 

costs (e.g., in the form of lease payments). In some cases, factors such 

as lower labor costs or fewer requirements could potentially help balance 

the higher cost of borrowing, making partner financing less expensive.

Table 1 outlines selected funding mechanisms, considerations for each 

mechanism based on our past work, and examples of mechanisms used 

by the selected agencies. Appendix III identifies prior reports where we 

provide more information on alternative funding mechanisms.

 23 GAO has done previous work on VA’s use of EULs to redevelop underutilized federal 

real property. For more information, see GAO, Federal Real Property: Improved Cost 

Reporting Would Help Decision Makers Weigh the Benefits of Enhanced Use Leasing. 

GAO-13-14 (Washington, D.C.: Dec. 19, 2012).
Page 19 GAO-14-239 Capital Financing

Table 1: Selected Alternative Funding Mechanism Definitions, Considerations, and Related Case Studies

Mechanisms

Considerations based on past 

work Case study examples Case study outcomes

Operating lease used to meet long-term need

An operating lease gives the federal 

government the use of an asset for a 

specified period of time, but the 

ownership of the asset does not 

change. While there are no specific time 

limits, an operating lease is not intended 

to be used for long-term property needs. 

When used as intended for shortterm needs, operating leases are 

not alternative funding 

mechanisms. However, operating 

leases—or successive operating 

leases—have been used to help 

acquire assets for which there is 

a long-term need, resulting in 

inefficient resource allocation 

decisions.

Operating leases used to 

consolidate space may require 

upfront costs (i.e., moving, space 

reconfiguration, furniture) but 

may result in long-term cost 

savings from decreased rental 

costs.

a

b

GSA: Operating Lease for 

NPS in Washington, DC

NPS relocated to leased 

space due to the renovation 

of Interior’s Headquarters in 

the early 2000s. In 2002, 

GSA consolidated multiple 

NPS components to 1201 

Eye Street, NW, Washington 

D.C. GSA was approved 

through the prospectus 

process to extend the lease 

in 2012 for 15 more years 

and utilize the space more 

efficiently. 

GSA acquired leased 

space needed to help 

transition NPS to federally 

owned space.

GSA is exploring 

opportunities to reduce 

costs by moving the entire 

NPS requirement into 

federally owned space.

GSA: Operating lease for 

NPS in Lakewood, Colorado

Although GSA considered 

construction, GSA entered 

into a replacement operating 

lease in Lakewood, 

Colorado, which allowed 

NPS to consolidate offices in 

2 locations into one office

with more efficient space 

utilization.

NPS annual lease 

payments were over $1.3 

million less than requested 

in the prospectus.
Page 20 GAO-14-239 Capital Financing

Mechanisms

Considerations based on past 

work Case study examples Case study outcomes

Land swap

A real property swap is an exchange of 

property owned by the federal 

government with either a private entity 

or a state or local government for 

another property. 

Use of land swaps is limited by 

the need for well-aligned mutual 

needs. Land swaps are generally 

non-cash transactions and thus 

are not recognized in the 

budget.c Property swaps can 

relieve the federal government of 

maintenance and/or renovation 

costs and result in a real asset 

that may be used immediately

with no additional appropriations 

required. However, determining 

fair value for the properties 

exchanged is not always a clearcut process and congressional 

oversight of these exchanges is 

limited.d

USDA, ARS: Land swap with 

city of Ames, Iowa

ARS exchanged land with 

the city of Ames, Iowa to 

meet its need for land near 

its facility outside the city of 

Ames to use for the disposal 

of manure from diseased 

animals used in 

experiments. ARS had land 

in Ames it could not use for 

this purpose that the city of 

Ames sought to use to build 

a new water treatment plant. 

The city acquired land for 

the sole purpose of 

completing the exchange 

with ARS.

ARS was able to dispose 

of excess property in one 

location and acquire land 

better situated for its 

needs. 

ARS officials reported that 

the land swap was more 

efficient and 

environmentally 

sustainable than building 

an expensive incinerator.

A land swap requires both 

a land disposal process 

and an acquisition 

process. As a result, ARS 

officials noted it was time 

intensive.

VA, VHA: Land swap with 

city of New Orleans, 

Louisiana

The New Orleans 

Replacement VA Medical 

Center Project will construct 

a new medical center to 

replace one damaged in

Hurricane Katrina. The city 

of New Orleans, through 

Louisiana State University 

on behalf of the state of 

Louisiana, acquired 

voluntarily and when 

necessary through eminent 

domain approximately 30 

acres of downtown New 

Orleans property that it

transferred to VA. In return, 

VA will transfer the existing 

damaged medical center to 

the city following activation 

of the new medical center. 

The land swap allowed VA 

to continue providing 

medical services while the 

new facility was under 

construction.

The city of New Orleans 

worked with the state of 

Louisiana to obtain the 

property that the city

swapped with VA

voluntarily and when 

necessary through 

eminent domain, ensuring 

the availability of 

appropriate space.
Page 21 GAO-14-239 Capital Financing

Mechanisms

Considerations based on past 

work Case study examples Case study outcomes

Retained fees 

Proceeds that result from business-type 

or market-oriented activities with the 

public, such as the collection of user 

fees. 

The legislation authorizing these 

fees may assign them for a 

specific purpose without further 

Congressional action or require 

them to be appropriated in 

annual appropriation acts before 

they can be spent. In some 

cases, agencies have been 

authorized to retain earned fees 

to fund capital projects and 

improvements.e

Interior, NPS: Herring Cove 

Beach and Nauset Light 

Beach in Provincetown and 

Eastham, Massachusetts 

NPS used recreation fees to 

fund repairs designed to 

protect the facilities from 

beach erosion, improve 

pavement and outdoor 

amenities, and replace the 

septic system. The building 

was renovated with new 

energy efficient features and 

moved further back from the 

shoreline.

Officials reported that 

using retained fees 

allowed NPS to complete 

high priority repairs more 

quickly than if NPS had 

requested appropriated 

funds.

Enhanced use lease (EUL)

An EUL allows an agency to lease out

property and receive payment in cash or 

in kind (goods or services that result in 

direct cost savings to the government) 

from the lessee. 

The agency acts as the lessor–

rather than lessee. The project is 

limited by the need to find an 

appropriate partner.

VA, VHA: Transitional 

Housing and Homeless 

Support Services in Dayton, 

Ohio f

The VA leased excess 

space to the Volunteers of 

America of Greater Ohio. 

The lessee renovated, 

operated, and maintained

one building on property 

leased from VA. In addition 

to lease payments, the 

lessee provided 50 units of 

transitional housing beds 

and related supportive 

services to eligible veterans 

and non-veterans.

VA was able to avoid 

costs associated with 

building maintenance, 

property maintenance, 

and outpatient and 

domiciliary services.

Source: GAO analysis of documentation and interviews from selected agencies, the Office of Management and Budget, and prior GAO

work.

a For example, see GAO-13-744. 

b For example, see GAO-13-744.

c For example, see GAO-03-1011.

d For example, see GAO-03-1011.

e For example, see GAO-03-1011.

f

See for example GAO, Federal Real Property: Progress Made in Reducing Unneeded Property, but 

VA Needs Better Information to Make Further Reductions, GAO-08-939 (Washington, D.C.: Sep. 10, 

2008) and GAO, Congressionally Chartered Organizations: Key Principles for Leveraging Nonfederal 

Resources, GAO-13-549 (Washington, D.C.: June. 7, 2013).
Page 22 GAO-14-239 Capital Financing

Alternative funding mechanisms are not universally available to all 

agencies. Moreover, even within an agency, legal authorities may differ 

across agency components. For example, the Forest Service and ARS—

both components of USDA—have different legal authorities to use 

alternative funding mechanisms. For example, the Forest Service has the 

authority to retain fees and ARS has the authority to enter into land 

swaps.

Instead of upfront funding, NPS uses retained recreation fees to fund 

high-priority projects linked to visitor need. NPS’s recreation fees, which 

are authorized by the Federal Land Recreation Enhancement Act, require 

that not less than 80 percent of retained recreation fees be spent at the 

site at which fees are collected while the remaining 20 percent is pooled 

to fund projects that are national priorities. This 20 percent of the retained 

recreation fees provides NPS additional flexibility. In 2011 Interior 

determined that it would request line item construction funds in fiscal year 

2014, but later identified fiscal year 2012 funds from an alternative 

funding mechanism, retained recreation fees, for the Herring Cove and 

Nauset Light Beach facilities renovations in Massachusetts, negating the 

need to seek additional funding. Interior has internal processes for 

prioritizing projects for line item budget requests and for allocating the 

retained recreation fees to high-priority projects, which NPS officials 

reported allowed Interior to complete the renovations more quickly than 

would have otherwise been possible with full upfront funding.

In 1991, Congress authorized VA to enter into EULs. VA’s available legal 

authorities also framed its 2008 decision to enter into an EUL with a 

nonprofit organization in Dayton, Ohio. VHA’s partner in the EUL 

leveraged nonfederal funds to renovate a building and provide housing 

and services to homeless veterans. The Dayton, Ohio Veterans Affairs 

Medical Center had underused historic buildings. Officials reported that 

the buildings’ historic status made it difficult to dispose of or demolish the 

buildings.

24 The Volunteers of America of Greater Ohio approached VA 

about entering into an EUL; they agreed to provide 50 beds of transitional 

housing and related services to homeless veterans in the property that 

VA wanted to take off its inventory in exchange for financial and 

nonfinancial considerations. VA determined that renovating the building 

 24 Officials reported historic status, stakeholder interest, and legal authorities are 

challenges to disposing of or demolishing buildings.
Page 23 GAO-14-239 Capital Financing

with appropriated funds would result in the highest upfront costs to VA 

and would forgo the benefit of any private-sector funding or participation.

VA accepted the Volunteers of America’s proposal and the Volunteers of 

America paid VA rent for the space and were responsible for renovating, 

operating, and maintaining the building as well as for providing housing 

and services to homeless veterans. By partnering with the Volunteers of 

America on this EUL, VA estimated that it has cumulatively achieved 

almost $2.8 million in cost avoidance and that the project has provided 

services valued at more than $2 million while costing the VA less than 

$500,000. Without the authority to enter into EULs or other alternative 

funding mechanisms, VA officials said that VA would not have been able 

to move forward with this project. VA’s EUL authority was amended in 

2012. VA may no longer accept in-kind consideration for EULs and may 

only enter into an EUL for the provision of supportive housing.25

Projects with alternative funding mechanisms involve multiple forms of 

risk—both implicit and explicit—that must be shared between the agency 

and any partner or stakeholder. We have previously reported that project 

decisions should reflect both the likely risk and the organization’s 

tolerance for risk. Incorporating risk assessment and risk management 

practices into decisions can help ensure that the organization recognizes 

and is prepared to manage explicit risks (e.g., financial and physical) and 

implicit risks (e.g., reputational).26 For example, clearly defined lease 

terms helped VA manage financial risk associated with the Dayton, Ohio 

EUL when its partner sought to share costs for unexpected building 

repairs for the building leased. During renovation, asbestos was 

discovered in the building and VA’s partner sought a financial contribution 

from VA to help offset some of the cost of the cleanup. Because the 

contract clearly held the partner financially responsible for unexpected 

expenses, VA was not liable for the cleanup costs. 

We have also previously reported that when working with a partner, it is 

important to actively manage the relationship.27 Formalizing collaborations 

 25 Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012, Pub. 

L. No. 112-154, title II, § 211, 126 Stat. 1165, 1179-1180 (Aug. 6, 2012).

26 See GAO, Congressionally Chartered Organizations: Key Principles for Leveraging 

Nonfederal Resources, GAO-13-549 (Washington, D.C.: June. 7, 2013).

27 See GAO-13-549.

Risk Sharing, Managing 

Stakeholder Relationships, 

and Other Factors Affect

Project Outcomes 
Page 24 GAO-14-239 Capital Financing

between the partners, including documenting dispute resolution 

processes, can enable productive partner interactions. For example, VA 

stepped in to more actively engage its partner, the city of New Orleans, in 

a land swap to build a hospital after Hurricane Katrina. To monitor project 

timelines and goals, officials representing all partners—including VA’s

Chief of Staff, the logistics manager and city counterparts—participated in 

a steering group. When it became apparent that the city of New Orleans 

was unable to meet its initial goal of having the property in constructionready condition within 1 year as outlined in a memorandum of 

understanding (MOU), the group began to meet weekly. VA and the city 

of New Orleans amended the MOU to permit phased delivery of the 

construction ready site. Additionally, New Orleans VA Medical Center 

continued to have quarterly meetings with the community. Officials 

reported that early coordination contributed to increased efficiency and 

improved outcomes and helped the project overcome challenges such as 

managing to meet different federal and state fiscal years and funding 

cycles, as well as different federal, state, and local policies.

In addition to an agency’s ability to share risk and manage stakeholder 

relationships, the availability of an appropriate partner and the geographic 

location of the property may affect the use and success of an alternative 

funding mechanism. We have previously reported that partners should 

bring complementary resources, skills, and financial capacities to the 

relationship.28 Agency officials reported that the geographic location and 

the condition of a property can make it difficult to locate a willing buyer 

and expensive to dispose of the property. For example, according to 

Forest Service officials, many of the structures that may be disposed of 

are of little value and are on land Forest Service will retain, such as a 

cabin in the woods. Additionally, these facilities may be located in remote 

areas that are difficult and costly to access with the construction 

equipment necessary for demolition. As part of the auction process, 

Forest Service typically asks for bids at salvage value and requires that 

the structure be removed from the property at the buyer’s expense. 

However, because of the expense to the buyer of the building removal 

and any necessary environmental remediation, properties are usually sold 

for low prices. The Forest Service benefits from selling the property—

even for a low value— because it is no longer financially responsible for 

costs such as maintenance, demolition, property removal, and 

 28 See GAO-13-549.
Page 25 GAO-14-239 Capital Financing

environmental remediation. For example, ARS needed to acquire land or 

build an incinerator to dispose of excess manure. ARS does not have the 

legal authority to purchase land valued at more than $100 and the 

incinerator would have been significantly more expensive than this limit, 

prompting ARS to consider a land swap. Because of these legal, cost, 

and anticipated stakeholder challenges, ARS officials said that ARS held 

onto the land for about 10 years while seeking an appropriate partner with 

whom to exchange land. When ARS identified an appropriate partner, it 

completed a land swap with the city of Ames, Iowa. ARS officials reported 

that this outcome was more efficient and environmentally friendly than the 

alternative of building an expensive incinerator.
Page 26 GAO-14-239 Capital Financing

While different funding mechanisms have been used as an alternative to 

obtaining upfront funding for federal real property projects, changes to the 

budgetary structure itself—within the bounds of the unified budget that 

encompasses the full scope of federal programs and transactions—may

also help agencies meet their real property needs.29 Alternative budgetary 

structures may be established to change budgetary incentives for 

agencies and therefore help Congress and agencies make more prudent 

long-term fiscal decisions. Such alternatives may include changing 

existing or introducing new account structures to fund real property 

projects.30 These alternatives could promote more complete consideration 

of the full costs of projects and associated returns over time as well as 

provide agencies with greater flexibility to manage their real property 

needs. This could be aided by agencies completing comprehensive 

business case analyses detailing project costs and returns in a process 

similar to GSA’s prospectus process.31 A business case analysis might 

include details about how the project aligns with an agency’s strategic 

plan, a needs assessment and gap identification, an alternatives 

evaluation, a life-cycle cost analysis, a schedule of project milestones and 

deliverables, and a cost-benefit analysis.32

 29 We have previously reported on the federal government’s use of the unified budget. 

Within the unified budget, the federal government treats spending on real property 

projects like any current operating expense. The unified budget recognizes the federal 

government’s involvement in national economic stability and growth, a responsibility that is 

uniquely federal and requires the government to focus on total spending in relation to total 

revenue. Reforms in how the federal government budgets for real property projects should 

be considered, but any capital budgeting allocation process should be studied within the 

overall constraints of a fiscal policy based on unified budget principles. See GAO 

GAO/PAD-83-1 and GAO/T-AIMD-98-99.

30 National infrastructure banks have been proposed to provide funding for broad 

infrastructure needs through an independent entity that could provide credit to support 

qualified infrastructure projects, such as transportation, water, and energy infrastructure 

primarily owned by state and local governments and the private sector. Because this 

report focuses on federally-owned real property, we do not address national infrastructure 

banks.

31 40 U.S.C. § 3307.

32 See GAO, Executive Guide: Leading Practices in Capital Decision-Making,

GAO/AIMD-99-32 (Washington, D.C.: December 1998) and GAO, Federal Capital: Three 

Entities’ Implementation of Capital Planning Principles Is Mixed, GAO-07-274

(Washington, D.C.: February 23, 2007).

Alternative Budgetary 

Structures Have 

Potential to Help

Congress and 

Agencies Recognize 

the Costs and 

Returns of Real 

Property Projects 

Upfront and Over 

Time
Page 27 GAO-14-239 Capital Financing

We explored options for changes within the current discretionary budget 

structure and options on the mandatory side of the budget by reviewing 

our past reports and discussing possible options with federal budget 

specialists and industry experts. We make no recommendations with 

respect to adopting these options. However, understanding the tradeoffs 

associated with different aspects of alternative budgetary structures can 

provide decision makers with more information and support decisions 

about funding federal real property projects.

To assist congressional and agency-level decision makers in considering

alternative budgetary structures, we identified two key budgeting and 

capital planning principles. An alternative budgetary structure should do 

two things: promote transparency and fiscal control with regard to the 

funding of federal real property projects; and provide agencies the 

flexibility to facilitate the acquisition, repair and alteration, and disposal of 

federal real property in support of federal missions. 

The two principles are each further supported by elements that may help 

frame the consideration of alternative budgetary structures. As decision 

makers consider these budgetary structures, they must balance tradeoffs 

between the two principles to understand whether the options would allow 

for full upfront cost recognition, establish accountability mechanisms to 

track cost recovery and return on investment, and provide timely funding 

to promote an appropriately sized federal real property inventory. The 

principles may interact and conflict with each other and each alternative 

budgetary structure has benefits and challenges. Moreover, the weight 

that different decision makers might place on the principles will vary, 

depending on the desired level of involvement. Table 2 provides an 

overview of the principles.

Within the discretionary budget 

structure, Congress provides budget 

authority for programs in annual 

appropriations acts. On the mandatory 

side of the budget, Congress provides 

budget authority for programs in laws 

other than annual appropriations acts.

Source: GAO-05-734SP

Budgeting and Capital 

Planning Principles Offer a 

Framework for 

Considering Alternative 

Budgetary Structures
Page 28 GAO-14-239 Capital Financing

Table 2: Principles for Considering Changes to the Current Budgetary Structure

Principle Elements Why this is important

Promote transparency and fiscal 

control with regard to the 

funding of federal real property 

projects

Allow for recognizing full costs when 

“useful assets”a Understanding whether costs and benefits are 

recognized upfront would allow Congress and agencies 

to compare the costs and benefits of proposed projects,

would result in the recognition of actual costs to 

taxpayers, and would inform the level of oversight 

required by Congress.

are acquired and the 

associated returns for the real property 

project

Establish accountability mechanisms to 

track the realization of estimated returns 

(e.g., cost savings and cost avoidance)

Understanding whether anticipated returns (e.g., cost 

savings and cost avoidance) would be realized would 

allow policymakers and agencies to have some 

assurance of cost recovery and return on investment.

Provide flexibility to facilitate the 

acquisition, repair/alteration, and 

disposal of federal real property 

in support of federal missions

Provide timely resources to support 

mission needs

Understanding whether the alternative budgetary 

structure would facilitate funding for real property 

projects in a timely manner may enable agencies to 

better plan and manage project funding and avoid 

certain costly project delays.

Promote appropriate size of federal real 

property inventory, including collaborating 

when possible

Understanding whether the alternative budgetary 

structure would enable agencies to work collaboratively 

to co-locate and consolidate space would inform 

assessment of how agencies can more efficiently use 

space and facilitate funding for such purposes as well 

as facilitate opportunities to partner with other 

stakeholders. 

Source: GAO, the President’s Commission on Budget Concepts, and OMB guidance on budgeting and capital planning.

a A useful asset is an economically and programmatically separate segment of procuring an asset or 

whole asset. The total asset procurement may include one or more useful assets. Preparation, 

Submission, and Execution of the Budget, app. J OMB Circular No. A-11 (2013).

Changes to the current discretionary structure for funding federal real 

property projects may provide a relatively straightforward means of 

dedicating funding to federal real property while creating room for 

additional agency flexibility. However, tradeoffs are inherent in budgeting 

and these changes may affect spending for other discretionary programs 

competing for mission critical resources.

Modify the FBF: The FBF is a discretionary fund that receives revenue 

through rental payments from agencies that lease buildings that GSA 

manages. GSA’s authority to access these funds is determined through 

the annual appropriations process. As previously described, resources 

deposited into the FBF have exceeded the amount that Congress has 

appropriated to GSA in recent years, resulting in a $4.7 billion difference 

between the full balance of the FBF and amounts made available for 

spending in fiscal year 2013. Congress provides authority to GSA to incur 

obligations and make expenditures from the FBF in five categories of 

activities, such as repairing and altering GSA-managed buildings and 

Discretionary Budget 

Authority Options Could 

Provide a Straightforward 

Means of Dedicating 

Funding to Real Property 

Projects
Page 29 GAO-14-239 Capital Financing

constructing new buildings. However, GSA officials said that because 

available funds must first be used to pay costs associated with other 

authorized activities, such as leasing privately owned space, operations 

and maintenance of GSA-managed buildings, and debt incurred from 

building acquisitions and lease purchase arrangements, repairs and 

alterations and new construction are the most affected. For example, 

GSA’s obligational authority for repairs and alterations projects decreased 

from $855 million in 2005 to $280 million in 2012.33 As a result, customer 

agencies are being charged for services that the GSA may be limited in 

its ability to provide in a timely manner. To meet agencies’ real property 

needs, the FBF could be modified in the following ways: 

• Make the full balance of the FBF available: Congress could make 

the full balance of the FBF available to GSA. GSA would then have 

resources to provide the full array of services for which it charges 

agencies, including repairs and alterations. In 2011, we reported that 

GSA’s overall obligational authority has trended downward in recent 

years, resulting in GSA reducing spending on repairs and alternations 

and new construction. GSA officials and OMB staff noted that such 

repairs have the potential to be more expensive if delayed.34 Making 

the full balance of the FBF available to GSA would increase funding 

for GSA to complete projects for agencies, but it would mean less 

congressional fiscal control and less funding for other mission critical 

needs. OMB staff noted that with access to all of its receipts, the FBF 

would be able to meet necessary recapitalization needs, such as 

major repairs and alterations. 

• Adjust the FBF pricing structure to exclude certain major 

renovations: To ensure that the GSA charges cover all services 

provided under agreements with tenant agencies, GSA could choose 

to exclude certain major renovations from agreed upon services.

35

GSA could then reduce rents to cover only operations and ongoing 

maintenance costs of federally-owned buildings. Appropriations 

decisions to fund capital repairs with rent savings would be made by 

 33 Obligational authority includes adjustments due to reprogramming and rescissions.

34 See GAO, Federal Buildings Fund: Improved Transparency and Long-Term Plan 

Needed to Clarify Capital Funding Priorities, GAO-12-646 (Washington, D.C.: July 12, 

2012).

35 As previously described, repairs, alterations and new construction are the most affected 

by GSA’s lack of access to the full balance of the FBF.
Page 30 GAO-14-239 Capital Financing

the agencies’ appropriations subcommittees. In effect, this would shift 

the locus of decision making from GSA’s appropriations subcommittee 

to the appropriations subcommittees of affected agencies. With the 

change in pricing structure, agencies would have the ability to decide 

whether to complete funded repairs and alterations in house or use 

contractors or shared service providers. However, because this option 

addresses GSA-managed buildings, there may not be an incentive for 

agencies to carry out this devolution of responsibility amid other 

priorities and it may be difficult for multi-agency tenant buildings to 

obtain funding for necessary renovations from their respective 

appropriations subcommittees. Nevertheless, an agency that uses a 

GSA-managed building as its headquarters, such as Interior, which 

has been unable to complete renovations through GSA, would gain 

some flexibility in completing repairs and alterations by requesting 

funding directly from its subcommittee. GSA officials noted that 

separating capital investment funding decisions from operations and 

maintenance funding decisions could make it difficult to manage the 

portfolio of government-owned and -leased assets in a strategic 

manner. They and OMB staff agreed that, without the shared funding 

aspect of the FBF, it was unlikely that agencies would have sufficient 

funds available to complete repairs and alterations, even if they were 

able to maintain the same level of appropriations. 

• Delay recognition of receipts until projects are ready for funding:

To better match FBF receipts with expenses, the recording of receipts 

from agencies could be held in a temporary account until transferred 

to the FBF, temporarily recorded as a mandatory receipt until 

transferred to the FBF as a discretionary offsetting collection. The 

receipts would be recorded in the FBF account when funds are 

appropriated for each “useful asset” of a project. Receipts from 

agencies to the FBF would then be recorded as discretionary offsets

in the fiscal year in which they are appropriated to GSA.

Carve out spending from the discretionary allocations: One approach 

to further invest in federal real property projects and meet 

governmentwide priorities could be to allocate resources at the full 

appropriations committee level, outside the competing priorities of the 

appropriations subcommittees. The appropriations subcommittees have 

jurisdiction over different agencies and are responsible for appropriating 

resources among their relevant agencies. Congress could agree to carve 

out of the full appropriations committee’s 302(a) allocation—the level of 

spending that the full appropriations committee is authorized to 

distribute—the amount for federal real property, effectively decreasing the 

cap for the subcommittees’ 302(b) allocations—the level of spending that 
Page 31 GAO-14-239 Capital Financing

the subcommittees are authorized to distribute to their respective 

agencies.36 This would free up funds for acquiring, disposing of, or 

repairing and altering space and provide a guaranteed funding level to 

real property; it would also protect it from competition with other programs 

that are more focused on spending for consumption activities. In the past, 

Congress has similarly chosen to allocate resources at the full committee 

level for certain programs. For example, in 1999 there were five 

discretionary categories with a separate spending limit “carved out”—

violent crime reduction, defense, non-defense, highway, and mass 

transit.37 As a result of these carve outs, total spending determinations 

were made at the full committee level rather than at the subcommittee 

level.38

Carving out of the full committee’s allocation spending for federal real 

property would also “crowd out” spending for all other discretionary 

programs that might represent a higher priority for the nation. For 

example, we have previously reported that if a guaranteed minimum 

funding level for a certain program is carved out of the full committee 

allocation, and total spending is not increased commensurately, then the 

remaining activities must compete for the reduced amount that is left.39

Alternatively, the total cap for the subcommittees’ allocation could be 

increased to dedicate funding to real property projects. The adjustment of 

the cap could be triggered by the approval of project proposals 

accompanied by business case analyses.

 36 Section 302(a) of the Congressional Budget and Impoundment Control Act of 1974 

stipulates that an allocation is the distribution of spending authority and outlays to relevant 

committees, based on levels contained in budget resolutions. This is known as the full 

committee’s allocation. Section 302(b) stipulates that an allocation is the distribution of 

spending and outlay authorities to relevant subcommittees based on the levels contained 

in a budget resolution. This is known as the subcommittee allocation. Pub. L. No. 93-344, 

88 Stat.297 (July 12, 1974).

37 See GAO, Budget Issues: Cap Structure and Guaranteed Funding, 

GAO/T-AIMD-99-210 (Washington, D.C.: July 21, 1999).

38 In the past, these spending limits served as a cap, not a floor; thus less than the capped 

amount could be appropriated, but any unused portion could not be reallocated to other 

areas of the budget.

39 See GAO/T-AIMD-99-210.
Page 32 GAO-14-239 Capital Financing

Related Questions on the Implementation of Discretionary Options:

1. If individual agencies and their respective appropriators and 

authorizers are responsible for making decisions regarding real 

property projects, would they have the real property expertise to 

initiate, implement, fund, authorize, and oversee real property 

acquisition, repairs/alteration and disposal?

2. If an appropriations carve out for federal real property is made at the 

full appropriations committee level:

• How narrowly would those funds be defined? (Deferred 

maintenance, costs related to preparing properties for disposal)

• How would a business case analysis be incorporated into 

obtaining access to carved-out funds?

• How would the carve out be divided amongst appropriations 

subcommittees?

• Might the creation of a Reserve Fund achieve the same purpose?

Mandatory budget authority options, such as creating a revolving fund 

with borrowing authority (e.g., a capital acquisition fund) or a dedicated 

fund with permanent, indefinite budget authority, could enable the 

recognition of costs and returns associated with complex real property 

projects upfront and over time. However, these options would require 

establishing new account structures and may present different challenges 

compared to discretionary budget authority options. Existing account 

structures, such as the Tennessee Valley Authority fund, may provide 

some insight for policymakers in considering the structure of the revolving 

fund with borrowing authority or permanent, indefinite budget authority.

Mandatory Budget 

Authority Options Could 

Increase Agency Flexibility 

and Improve Cost-Benefit 

Recognition But Would 

Require a Different Means 

of Assuring Fiscal Control

Example of a Revolving Fund with Borrowing Authority

The Tennessee Valley Authority fund is an example of a revolving fund with borrowing 

authority. The fund was created in the Tennessee Valley Authority Act of 1933. The fund 

is self-sustaining with revenue earned by supplying electric power to customers in seven 

states and from exercising its authority to borrow from the public by issuing debt 

instruments, such as bonds and notes. The fund has a borrowing limit of $30 billion.

Source: GAO analysis of the Tennessee Valley Authority Act of 1933, as amended.
Page 33 GAO-14-239 Capital Financing

Borrowing authority and permanent, indefinite budget authority could be 

provided outside of the annual budget and appropriations cycle, allowing 

for a greater degree of agency flexibility when planning for and carrying 

out real property projects. Controls on access to funds in both scenarios 

could be based on comprehensive project proposals with a business case 

analysis40 completed by agencies and submitted to the fund manager, 

OMB and the Congress to ensure their agreement that the project 

warrants access to this type of funding. This analysis would describe, 

among other aspects, the nature of the project and potential savings or 

costs avoided. If the proposal was accepted, funding could be provided 

for each useful asset. For each useful asset, agencies might provide 

updated business case analyses, which could include reestimates of both 

costs and returns. 

Mandatory budget authority options may also present opportunities to 

promote collaboration among agencies with different appropriators and 

authorizers as well as allow for better alignment of upfront costs with 

longer-term returns. These options could result in a centralized funding 

source available to all agencies, which could facilitate consolidation, 

sharing space, and partnering among agencies for other real property 

needs. Mandatory options could also be established to receive returns, 

such as proceeds from disposals, or enforce the recognition of nonmonetary returns, such as cost avoidance or cost savings, through 

revised business case analyses provided by agencies as they complete 

useful assets of projects. Despite these benefits, mandatory budget 

authority options could result in a shift of the locus of decision making 

from appropriators to authorizers, and would create new management 

and oversight responsibilities for federal entities. In addition, under the 

pay-as-you-go (PAYGO) budgetary enforcement mechanism, mandatory 

budget authority options would require costs to be offset by an increase in 

mandatory receipts or a decrease in mandatory spending for other 

 40 Business case analyses might include such things as how the project aligns with the 

agency’s strategic plan, needs assessment and gap identification, alternatives 

evaluations, life-cycle costs, a schedule of project milestones and deliverables, and costbenefit analyses. See GAO, Executive Guide: Leading Practices in Decision-Making,

GAO/AIMD-99-32 (Washington, D.C.: December 1998) and GAO, Federal Capital: Three 

Entities’ Implementation of Capital Planning Principles Is Mixed, GAO-07-274

(Washington, D.C.: Feb. 23, 2007).

Borrowing authority is authority 

granted to a federal entity to borrow 

funds, then obligate against amounts 

borrowed. Generally, agencies with 

borrowing authority are expected to 

repay the borrowing out of future 

resources. 

Permanent, indefinite budget 

authority refers to budget authority for 

an unspecified amount made available 

as the result of previously enacted 

legislation and is available without 

further legislative action. Such budget 

authority can be the result of 

substantive legislation or appropriation 

acts.

Source: GAO-05-734SP.
Page 34 GAO-14-239 Capital Financing

programs.41 Nonetheless, these options could result in cost savings and 

cost avoidance over the long term.

Create a capital acquisition fund (CAF): Congress could provide 

budget authority in the form of borrowing authority to a governmentwide 

capital acquisition fund (CAF) managed by a single agency, such as 

GSA.

In contrast to a department-level CAF, which we have previously reported 

on,42 a centralized governmentwide CAF could provide funding for real 

property projects for all agencies. The fund could complement the FBF by 

providing upfront funding for complex, multi-prospectus level projects or 

projects estimated to exceed a certain total cost threshold while the FBF 

could be used for relatively straightforward rental and maintenance 

expenses. The governmentwide CAF could be subject to a borrowing limit 

and provide upfront funding for the full cost of projects (or useful assets of 

projects). As depicted in Figure 4, a governmentwide CAF could be 

established to: 

1. Use its authority to borrow from the Federal Financing Bank (FFB) to 

fund real property projects agreed upon by Congress, OMB and the 

CAF manager on a project-by-project basis for all agencies.

2. Use annual payments made by agencies to the CAF to repay the loan 

from the FFB. The annual payments—provided by agencies’ 

subcommittee appropriators—would be principal and interest 

amortized over the useful life of the asset, allowing the agency to 

spread the project cost over time.

3. Automatically receive other monetary returns associated with real 

property projects to be used for future real property projects or deficit 

 41 Under PAYGO, proposed changes in, or new permanent, law may not increase the 

deficit. Budget Enforcement Act of 1990 Pub. L. No. 101-508, 104 Stat. 1388 (Nov. 5, 

1990), as amended by Statutory Pay-As-You-Go Act of 2010, Pub. L. No. 111-139, 124 

Stat. 8 (Feb. 12, 2010).

42 We previously reported that establishing a department-level CAF would be a complex 

process and the benefits of such a structure could be achieved through simpler means. A 

department-level CAF would use borrowing authority to buy new departmental subunit 

assets. The subunits would then pay the CAF a mortgage payment, which the CAF would 

use to pay back the loan from the Treasury. For more information, see GAO, Capital 

Financing: Potential Benefits of Capital Acquisition Funds Can Be Achieved through 

Simpler Means, GAO-05-249 (Washington, D.C.: April 8, 2005).

A capital acquisition fund (CAF) is a 

mechanism for financing federal real 

property projects with the goal of 

improving decision making by reflecting 

annual costs in program budgets and 

helping ameliorate increases in budget 

authority for projects without forfeiting 

upfront cost recognition.

Source: GAO-05-249
Page 35 GAO-14-239 Capital Financing

reduction. During implementation as well as at completion of projects, 

agencies would inform the CAF (along with Congress and OMB) 

about all returns, including nonmonetary returns, such as cost 

avoidance or cost savings, via revised business case analyses.

Figure 4: One Model for Obtaining Funding Through a Government-wide Capital Acquisition Fund (CAF)
Page 36 GAO-14-239 Capital Financing

Establish a dedicated fund with permanent, indefinite budget 

authority: Congress could pass legislation to establish a 

governmentwide, dedicated fund with permanent, indefinite budget 

authority instead of borrowing authority. Similar to the CAF, this fund 

could be managed by a single agency, such as GSA. As depicted in 

Figure 5, it could automatically receive sums as needed, eliminating the 

need for annual appropriation to acquire, dispose of, or repair and alter 

federal real property. The dedicated fund could be at least partially 

replenished as agencies return net proceeds, such as proceeds from the 

sale of a building. The fund could complement the FBF by providing 

upfront funding for complex, multi-prospectus level projects or projects 

estimated to exceed a certain total cost threshold while the FBF could be 

used for relatively straightforward rental and maintenance expenses. One 

concern with providing permanent, indefinite budget authority is that it 

could reduce agency incentives to provide credible cost estimates in their 

business case analyses; initial estimates might be artificially low if

agencies are held harmless for additional costs that result from price 

changes.

Figure 5: One Model for Obtaining Funding Through a Dedicated Fund
Page 37 GAO-14-239 Capital Financing

Related Questions on the Implementation of Mandatory Options:

1. What would be the budget enforcement implications for providing 

permanent, indefinite budget authority and borrowing authority in the 

mandatory options? Given that federal budgeting rules require that 

increases in mandatory spending be offset by decreases in other 

mandatory spending (or an increase in mandatory receipts),43 where 

would the offset come from to meet this condition?

2. How narrowly would the use of the mandatory options be defined? 

For example, would it be meant only for civilian federal real property 

needs?

3. Would the congressional locus of decision making regarding proposed

projects reside with appropriators or authorizers?

4. How would the business case analysis process work? What criteria 

would be used to consider proposed projects for approval?

5. How would appropriators be involved in the business case analysis 

process?

6. What mechanisms could be used to ensure that returns are realized in 

future years?

7. What budget process changes would be needed to ensure that 

subcommittee appropriators would provide funding to agencies to 

make annual payments to the CAF to repay the FFB in future years?

A central goal of the budget process is to assist the Congress in 

allocating governmentwide resources efficiently. In the context of federal 

real property, recognizing costs up front when resource allocation 

decisions are made is one way to achieve this goal. Given that full upfront 

funding is an effective way to ensure recognition of commitments 

embodied in budgeting decisions, an examination of budgetary changes 

that could improve cost-benefit recognition provides an opportunity to 

help Congress achieve this goal. Our selected agencies have 

experienced challenges receiving full upfront funding for federal real 

property projects through the annual appropriations process and instead 

have used alternative funding mechanisms, such as public-private 

partnerships and operating leases to meet long-term needs.

 43 2 U.S.C. §§ 931-939.

Concluding 

Observations
Page 38 GAO-14-239 Capital Financing

In times of fiscal pressure, employing alternative funding mechanisms to 

carry out real property projects can appear attractive to agencies because 

it does not first require obtaining full upfront funding. However, there are 

inherent risks in using an alternative funding mechanism and many 

factors affect the outcome. For example, employing alternative funding

mechanisms may result in funding federal real property investments 

without recognizing their true, full costs. This could mean that assets 

financed through alternative mechanisms may be selected over other 

equally worthy projects that are competing for full upfront funding. 

Moreover, with the administration’s emphasis on “freezing the footprint,” 

investment decisions that do not recognize costs upfront and returns over 

time may not result in an appropriate assessment of the size and cost of 

the federal real property inventory.

We have presented options for alternative budgetary structures that 

congressional decision makers may wish to consider. Alternative 

budgetary structures, such as modifying the Federal Buildings Fund 

(FBF) or establishing a mandatory dedicated fund, could help them 

recognize a project’s full upfront costs and returns over time. While these 

options could increase flexibility for agencies in addressing their real 

property needs, they could also result in less fiscal control for Congress. 

However, if accompanied by appropriate congressional oversight and 

rigorous financial management, these options may be useful in facilitating 

prudent real property investment within the current unified budget 

structure.

There is no single best option, and all options we explored would have 

considerable challenges that would need to be weighed against potential 

benefits. In addition, there are broader considerations associated with 

funding real property projects beyond the scope of this report. Both 

Congress and agencies have a role in effectively managing real property 

projects. The authorization or use of an alternative funding mechanism or 

an alternative budgetary structure requires consideration of tradeoffs to 

arrive at a deliberate choice that neither creates disincentives for 

agencies to seek upfront funding nor minimizes fiscal control required by 

Congress.

We provided a draft of this report for review and comment to the 

Secretaries of the Departments of Agriculture (USDA), Interior, and 

Veterans Affairs (VA), and to the Administrator of the General Services 

Administration (GSA). All agencies generally concurred with our findings. 

In his written response, the VA Chief of Staff discussed challenges with 

several of the potential alternative budgetary structures outlined in the 
Page 39 GAO-14-239 Capital Financing

report. As we say in our report, while we explored alternative budgetary 

structure options, each option has both benefits and challenges and we 

make no recommendations with respect to adopting any of these options. 

Further, our report states that any potential mandatory alternative 

budgetary structure to fund large projects would be used by agencies 

voluntarily, complementing upfront funding through the appropriations 

process and the Federal Buildings Fund. We further clarified this point in 

our report. In his written statement, GSA’s Administrator expanded upon 

the challenges that we report agencies experience in funding upfront 

costs that could lead to long-term savings. He also stated that some of 

the described alternative budgetary structures would be more effective 

than others. USDA, Interior, and VA provided technical comments, which 

we incorporated as appropriate. We also provided a copy of the report to 

the Office of Management and Budget, which provided technical 

comments that we incorporated as appropriate.

We are sending copies of this report to the Secretaries of Agriculture, 

Interior, and Veterans Affairs and to the Administrator of the General 

Services Administration. In addition, the report is available at no charge 

on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report please contact 

me at (202) 512-6806 or irvings@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made key contributions to this report 

are listed in appendix IV.

Sincerely yours,

Susan J. Irving

Director for Federal Budget Analysis

Strategic Issues
Appendix I: Comments from the General 

Services Administration

Page 40 GAO-14-239 Capital Financing

Appendix I: Comments from the General 

Services Administration
Appendix I: Comments from the General 

Services Administration

Page 41 GAO-14-239 Capital Financing
Appendix I: Comments from the General 

Services Administration

Page 42 GAO-14-239 Capital Financing
Appendix II: Comments from the Department 

of Veterans Affairs

Page 43 GAO-14-239 Capital Financing

Appendix II: Comments from the Department 

of Veterans Affairs
Appendix II: Comments from the Department 

of Veterans Affairs

Page 44 GAO-14-239 Capital Financing
Appendix III: Selected Related GAO Work

Page 45 GAO-14-239 Capital Financing

Background

• GAO, Capital Financing: Partnerships and Energy Savings 

Performance Contracts Raise Budgeting and Monitoring Concerns,

GAO-05-55 (Washington, D.C.: Dec. 16, 2004).

• GAO, Budget Issues: Alternative Approaches to Finance Federal 

Capital, GAO-03-1011 (Washington, D.C.: Aug. 21, 2003).

• GAO, Federal Buildings: Funding Repairs and Alterations Has Been a 

Challenge—Expanded Financing Tools Needed, GAO-01-452

(Washington, D.C.: Apr. 12, 2001).

Leases

• GAO, Federal Real Property: GSA Should Clarify Savings Goals for 

the National Broker Program, GAO-14-14 (Washington, D.C.: Oct. 31, 

2013).

• GAO, Federal Real Property: Greater Transparency and Strategic 

Focus Needed for High-Value GSA Leases, GAO-13-744

(Washington, D.C.: Sept. 19, 2013).

• GAO, Federal Real Property: Overreliance on Leasing Contributed to 

High-Risk Designation, GAO-11-879T (Washington, D.C.: Aug. 4, 

2011).

Enhanced Use Leases

• GAO, Department of Energy: Status of Loan Programs,

GAO-13-331R (Washington, D.C.: Mar. 15, 2013).

• GAO, Military Bases: Opportunities Exist to Improve Future Base 

Realignment and Closure Rounds, GAO-13-149 (Washington, D.C.: 

Mar. 7, 2013).

• GAO, Federal Real Property: Improved Cost Reporting Would Help 

Decision Makers Weigh the Benefits of Enhanced Use Leasing, 

GAO-13-14 (Washington, D.C.: Dec. 19, 2012).

• GAO, Renewable Energy Project Financing: Improved Guidance and 

Information Sharing Needed for DOD Project-Level Officials, 

GAO-12-401 (Washington, D.C.: Apr. 4, 2012).

• GAO, Excess Facilities: DOD Needs More Complete Information and 

a Strategy to Guide Its Future Disposal Efforts, GAO-11-814

(Washington, D.C.: Sept. 19, 2011).

• GAO, Defense Infrastructure: The Enhanced Use Lease Program 

Requires Management Attention, GAO-11-574 (Washington, D.C.: 

June 30, 2011).

• GAO, Military Housing: Installations Need to Share Information on 

Their Section 801 On-Base Housing Contracts, GAO-11-60

(Washington, D.C.: Oct. 28, 2010).

Appendix III: Selected Related GAO Work

Alternative Funding 

Mechanisms
Appendix III: Selected Related GAO Work

Page 46 GAO-14-239 Capital Financing

• GAO, Defense Infrastructure: Army's Privatized Lodging Program 

Could Benefit from More Effective Planning, GAO-10-771

(Washington, D.C.: July 30, 2010).

• GAO, Military Housing Privatization: DOD Faces New Challenges Due 

to Significant Growth at Some Installations and Recent Turmoil in the 

Financial Markets, GAO-09-352 (Washington, D.C.: May 15, 2009).

• GAO, Federal Real Property: Progress Made in Reducing Unneeded 

Property, but VA Needs Better Information to Make Further 

Reductions, GAO-08-939 (Washington, D.C.: Sep. 10, 2008).

• GAO, Congressionally Chartered Organizations: Key Principles for 

Leveraging Nonfederal Resources, GAO-13-549 (Washington, D.C.: 

June 7, 2013).

• GAO, Federal Real Property: Strategic Partnerships and Local 

Coordination Could Help Agencies Better Utilize Space, GAO-12-779

(Washington, D.C.: July 25, 2012 ).

• GAO, Federal Real Property: Improved Standards Needed to Ensure 

That Agencies’ Reported Cost Savings Are Reliable and Transparent, 

GAO-14-12 (Washington, D.C.: Oct. 29, 2013).

• GAO, Federal Real Property: National Strategy and Better Data 

Needed to Improve Management of Excess and Underutilized 

Property, GAO-12-645 (Washington, D.C.: June 20, 2012).

• GAO, Streamlining Government: Questions to Consider When 

Evaluating Proposals to Consolidate Physical Infrastructure and 

Management Functions, GAO-12-542 (Washington, D.C.: May 23, 

2012).

• GAO, Federal Real Property: Progress Made Toward Addressing 

Problems, but Underlying Obstacles Continue to Hamper Reform,

GAO-07-349 (Washington, D.C.: Apr. 13, 2007).

• GAO, Federal Real Property: Actions Needed to Address Longstanding and Complex Problems, GAO-04-119T (Washington, D.C.: 

Oct. 1, 2003).

Partnering

Federal Real Property 

Reports
Appendix IV: GAO Contacts and Staff 

Acknowledgements

Page 47 GAO-14-239 Capital Financing

Susan J. Irving (202) 512-6806 or irvings@gao.gov

In addition to the contact name above, Carol M. Henn, Assistant Director, 

Alexandra Edwards, Vida Awumey and Melissa King made major 

contributions to this report. Also contributing to this report were Virginia 

Chanley, Deirdre Duffy, Felicia Lopez, and Donna Miller. In addition, the 

following individuals provided programmatic expertise: Michael Armes, 

Keith Cunningham, Brian Lepore, David Sausville, and David J. Wise.

Appendix IV: GAO Contacts and Staff 

Acknowledgements

GAO Contact

Staff 

Acknowledgements

(451036)
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